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Comcast Corp. (CMCSA) delivered disappointing third quarter 2011 results. The company suffered huge video subscriber losses, which in turn affected the company’s performance in the reported quarter.

Third Quarter Highlights

Total revenue in the third quarter of 2011 came in at $14,339 million, up 51.1% year over year and ahead of the Zacks Consensus Estimate of $14,220 million. Both Cable Communications and NBC Universal segments contributed to the solid revenue growth.

GAAP net income for the third quarter of 2011 was $908 million or 33 cents per share compared with $867 million or 31 cents per share in the prior-year quarter. However, quarterly EPS of 33 cents was significantly below the Zacks Consensus Estimate of 40 cents. This was primarily attributable to higher interest charges and taxes along with a $256 million decrease in investment income.

Operating margin, in the third quarter of 2011, was 18.4% compared with 20.6% in the prior-year quarter.

Agreements of Analysts

Of the 17 analysts covering the stock in the last 7 days, none revised their estimates upward for the fourth quarter of 2011, while three analysts revised their estimates downward for the same period. Similarly, for the first quarter of 2012, out of the seven analysts covering the stock, none increased their estimates, while only one analyst decreased the estimate.

For fiscal 2011, out of the 14 analysts, none raised their estimates, while one decreased the same. Likewise, for fiscal 2012, out of 19 analysts, none revised their estimates upward, while two analysts moved in the opposite direction.

We believe such negative sentiment results from the continuous loss of video subscribers. Furthermore, we believe that huge debt coupled with higher interest and operating expenses will continue to affect Comcast going forward.

Currently, the Zacks Consensus EPS Estimate for the fourth quarter of 2011 is pegged at 43 cents per share. The projected annual growth rate is 26.3%. Similarly, for the first quarter of 2012, the current Zacks Consensus EPS Estimate of 42 cents per share indicates a year-over-year gain of 17.06%.

Magnitude of Estimate Revisions

During the last 7 days, for the fourth quarter of 2011, the current estimate was just a penny short of the Zacks Consensus Estimate of 44 cents. Similarly, for the first quarter of 2012, the current estimate remained one cent below the Zacks Consensus Estimate of 43 cents.

Again for fiscal 2011, in the last 7 days, the current estimate was just a penny short of the Zacks Consensus Estimate of $1.55. However, for fiscal 2012, the Zacks Consensus Estimate increased 7 cents from $1.87 to $1.89.

Earning Surprises

Comcast produced an earnings surprise of 7 cents or 17.50% in the last quarter. The ongoing quarter and the next quarter reflects an upside potential (essentially a proxy for future earning surprises) of 2.33% and 0.00%, respectively, while both fiscal 2011 and 2012 remain at break-even.

Our Recommendation

Comcast is all set to become a media powerhouse armed with its unique control over both content and distribution after completing the acquisition of a controlling stake in NBC Universal. The company is also aggressively deploying the DOCSIS 3.0 (also called Wideband) technology to upgrade its existing customers to high-speed network together with all digital networks.

However, stiff competition from formidable rivals like Time Warner Cable (TWC) and other satellite operators like DIRECTV (DTV) and DISH Network Corporation (DISH) will most likely affect Comcast going forward. Moreover, huge debt, higher operating expense coupled with continuous loss of video subscribers will affect its bottom-line growth.

We maintain our long-term Neutral recommendation on Comcast. Currently, Comcast has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

 
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